The Policy Response to the Employment Task Force And

the policy response to the employment task force and
changing patterns of domestic purposes benefit
receipt: a cohort analysis

Moira Wilson

Ministry of Social Policy

introduction[1]

Policy affecting recipients of the Domestic Purposes Benefit (DPB)[2] has undergone a series of radical changes since the announcement of the policy response to the Employment Task Force (ETF) in 1995. These changes have been accompanied by significant shifts in patterns of DPB receipt. Numbers in receipt have taken their most sustained fall since the introduction of the statutory DPB in 1973[3], and recipients' likelihood of declaring private income in addition to benefit, while still relatively modest, has grown substantially.

This paper uses benefit dynamics data[4] to provide an in-depth picture of what has happened to successive cohorts of DPB recipients as they moved through the period of the ETF and subsequent reforms. A "multiple cohort analysis" of this nature has some advantages over time series analysis as a means of exploring the possible effects of policy reforms. One of the uncertainties when considering time series data is the extent to which changes in the composition of the population, rather than changes in policy settings, account for any changes observed. By following a cohort of individuals through a period of policy reform, we can be sure that any change in the experiences of the cohort is not the result of changes in its composition, other than those that result from the ageing of its members.

In addition, by following several cohorts we can tentatively assess the possible impact of a reform by comparing the change in experiences for a cohort that has passed the date at which a reform was introduced with that for an earlier cohort that reached the same "age" (or, in the case of this analysis, the same duration from entry) prior to the reform. Any "difference in differences" observed might reflect the impact of the reform. Such an assessment can only be tentative, however, because the contrasting experiences of successive cohorts might also reflect:

·  differences in their composition (later cohorts, for example, might have a greater representation of those with older children and may be morel likely to have moved into employment by a given duration from entry);

·  differences in the rate at which they "mature" (later cohorts might be more likely to enter benefit having worked in the past and may as a result move into employment when their children are younger); or

·  differences in the economic or social environment faced by the cohorts at a given duration from entry (later cohorts might have greater opportunities to work, or face a stronger social expectation that work is appropriate).

That said, the ETF reforms had a particular feature that allows us to be less tentative about the relationship between some cohort-on-cohort-differences and policy impacts. Specifically, the reciprocal obligations that were introduced as part of the response to the ETF applied only to sub-groups of the DPB recipient population. This means that when we compare the contrasting experiences of successive cohorts of the sub-groups affected by reciprocal obligations with those of sub-groups unaffected by the change, any differences that we observe are less likely to be the result of changes in the economic or social environment, as these might be expected to affect all sub-groups.

Statistical analysis to estimate the existence and size of policy impacts, controlling for other possible effects, is an area for further work. The task of this paper is to provide a preliminary, descriptive analysis that identifies changes that are consistent with policy impacts and warrant further investigation.

The paper opens with an overview of the policy reforms and other changes that may have influenced patterns of benefit use since the announcement of the ETF reforms. Successive cohorts of entrants to DPB that are the subject of the analysis are then examined, before turning to an assessment of shifts in patterns of declared earnings and benefit receipt experienced by these cohorts that might be consistent with the effects of the ETF reforms.

policy, delivery, economic and demographic change, 1995 – 1999

The policy response to the ETF, announced in 1995, made a number of changes to the DPB. (Box 1 gives a chronology of these events.) A new abatement regime introduced on 1 July 1996 offered greatly improved financial incentives to combine DPB receipt with part-time employment (Box 2): the income threshold beyond which the main benefit began to abate was increased for all benefit recipients; and for DPB recipients, together with Widows and Invalids Benefit recipients, the abatement rate applying for the first $100 weekly income above this threshold was substantially reduced.

From 1 April 1997, these improved financial incentives were matched by the introduction of reciprocal obligations for some groups of DPB recipients (Focus on Employment, 1995):

·  Those with a youngest child aged 14 or over and women alone receiving DPB became subject to a part-time work or training test. This work test applied to new applicants from 1 April 1997, and began to be rolled out to existing recipients as they came up for annual renewal from that date, with provision for exemption in cases where work testing was not considered appropriate.

·  Those with a youngest child aged 7-13 (and some receiving the Caring for Sick or Infirm class of DPB) who had received DPB continuously for at least a year were required to attend a mandatory annual planning interview aimed at encouraging voluntary participation in part-time employment, education or training in preparation for the work-or-training test. From 1 April 1997, this requirement began to be rolled out to existing recipients as they came up for annual renewal, or as their child turned 7, whichever was the sooner, with provision for exemption.

Box 1: Policy, Delivery and Other Events Affecting DPB Recipients

Date / Change
Oct 1995 / Policy response to the ETF is announced
Oct 1995 / Compass programme is extended nationwide
Apr 1996 / National roll-out of customised service and activity agreements begins
May 1996 / Government's response to the ETF is passed into law
Jul 1996 / New part-time abatement regime takes effect
Independent Family Tax Credit is introduced
Rates of Family Support are increased
First round of tax cuts take effect
Secondary tax rate applying to earnings on top of benefit is reduced
Apr 1997 / ETF reciprocal obligations begin to be rolled out
Jul 1997 / The level of Independent Family Tax Credit is increased
Further increases to rates of Family Support take effect
Aug 1997 / The Compass programme is in place nationally and the number of places available begins to be increased to 16,000
Jan 1998 / Rates of Family Support for dependent children aged 16-18 are increased
Apr 1998 / The roll-out of ETF reciprocal obligations is completed
Apr-Jun 1998 / Income Support runs an advertising campaign targeting benefit fraud
May 1998 / DPB Review changes are announced as part of the Budget and passed into law soon after
Jul 1998 / Further tax cuts take effect
Oct 1998 / Work and Income New Zealand is formed
Oct 1998 / Changes to the Training Incentive Allowance are announced
Jan 1999 / Changes to the Training Incentive Allowance come into effect
Feb 1999 / DPB Review changes take effect. Further changes to reciprocal obligations begin to be rolled out.
Feb + Jun 1999 / The Inland Revenue Department runs an advertising campaign to raise awareness of Independent Family Tax Credit and Family Support among low working families

Box 2: Abatement Rates Applying to DPB

Abatement rate applying to DPB
Income level ($ per week) / Before 1 July 1996 / From 1 July 1996
$0-60* / 0% / 0%
$61-80 / 30% / 0%
$81-80 / 70% / 30%
$181 or over / 70% / 70%
* Before 1 July 1996 the lower income threshold for DPB and other benefit recipients without children was $50 per week.

The aim of the changes was to increase DPB recipients' participation in part-time employment and raise awareness of opportunities for education and training as a means of improving their chances of full-time employment and independence from benefit income in the longer term.

These benefit reforms were not made in isolation. The broader ETF package made changes to education and labour market policy and practices, extended the Compass programme nation-wide to all but four control sites, and made changes to the forms of job search assistance available to work-tested beneficiaries. The Tax Reduction and Social Policy Programme through which the ETF benefit changes were enacted cut rates of personal income taxes, including the secondary tax rate applying to earnings received while on benefit, increased rates of Family Support, and introduced a new Independent Family Tax Credit for families not in receipt of significant state support (Birch, 1996).

The reforms also came into effect at the same time as customised service in the delivery of benefits was being extended nation-wide. A key element of customised service was engaging benefit recipients, where appropriate, in a process of planning for independence from benefit through regularly reviewed "activity agreements". This welfare-to-work oriented case management continued with the formation of Work and Income New Zealand in October 1998.

The ETF reforms were not long in place before further extension of work testing and other reforms flowing from the Review of DPB were announced as part of the 1998 Budget. From 1 February 1999:

·  The work test applying to those with no children or a youngest child aged 14 or over, and women alone, was to be strengthened to require participation in or search for full-time work.

·  Those subject to this new full-time work test were to become subject to the abatement regime that encouraged full-time rather than part-time work.[5]

·  Those with a youngest child aged 6 to 13 were to become subject to a part-time work test.

·  Participation in training or study would no longer automatically satisfy the work test requirements facing DPB recipients: access to training as a route to employment became the subject of more active case management and case-worker discretion.

·  Those with younger children on benefit for more than 12 months were to become subject to annual mandatory planning interviews. Within this group, those with a youngest child aged 5 could be required to undertake activities in preparation for the work test, which would apply when that child turned 6.

·  Those with children aged 5 to 13 were to gain access to a subsidy for after school and school holiday care (the OSCAR subsidy).

These changes were accompanied by a host of facilitative measures aimed at smoothing the path from benefit to full-time work. Changes to reciprocal obligations were rolled out to existing recipients as they came up for annual renewal, with provision for deferral in special cases.

·  At the beginning of 1999, new roles refocusing eligibility for the Training Incentive Allowance in line with the new work expectations, introducing more work-focused case management to determine eligibility to the payment, and increasing the contribution to costs required of some course participants also came into effect.

·  Interspersed with the more recent changes to benefit policy were a number of advertising campaigns aimed at those on benefits or low incomes. The announcement of the DPB Review reforms coincided with an advertising campaign that targeted benefit fraud. The introduction of the DPB Review changes coincided with a campaign seeking to raise awareness of family assistance available to low-income working families through the tax system.

·  All of these events, including the announcements, passing of legislation, advertising campaigns and changes in delivery, as well as the policy changes themselves, could have influenced the behaviour of people receiving DPB. Their rapid pace presents particular challenges in distinguishing the immediate impacts of the ETF reforms from those of other changes that coincided with them, and in distinguishing the longer-term effects of the ETF reforms from the effects of the changes that followed.

·  Further complicating the task of identifying policy impacts are the social, demographic and economic changes that occurred over the period. Goodger and Larose (1999) highlight the role that demographic changes and changing economic conditions played in explaining trends in sole parents' employment over the last two decades. The pace of economic growth, which had been rapid in the early part of the post-1992 recovery, slowed after June 1994. The economy contracted slightly in the middle of 1998 but had recovered to 1997 levels by December 1998. With these changes, the proportion of the working-age population employed full-time recovered and then fell, while part-time employment propensities generally increased or remained stable (Figure 1). These economic changes, together with the "ageing" of the sole-parent population over the period as smaller birth cohorts moved into the peak ages for childbearing, are likely to partly explain the recent changes in earnings and dependence on benefit income.

Figure 1 Annual Average Percentage Point Change in the Proportion of the Working-Age Population Employed, 1990 1999

Source: Household Labour Force Survey

six entry cohorts, 1993-1998

Using benefit dynamics data, we are able to look at what happened to successive cohorts of DPB recipients as they moved through the period of the ETF policy reforms. One of the advantages of using benefit dynamics is that it allows us to analyse the entire population of individuals in a cohort rather than a sample. This permits examination of the experiences of narrowly defined sub-groups while avoiding the usual problems arising from sampling error. Table 1 shows the size and composition of the six cohorts of DPB entrants that are the subject of the present analysis.[6]